Rexnord (RXN) Tops Q3 EPS by 6c, Revenues Beat; Lowers FY20 Adj. EBITDA Mid-Point Outlook Citing Impact of 737MAX Suspension

Rexnord (NYSE: RXN) reported Q3 EPS of $0.48, $0.06 better than the analyst estimate of $0.42. Revenue for the quarter came in at $492 million versus the consensus estimate of $487.2 million.

Third Quarter Highlights

• Net sales were $492 million and increased 1% year over year (+1% core sales(1), +1% acquisitions, -1% foreign currency translation).
• Net income from continuing operations was $48 million (diluted EPS of $0.39), compared with $53 million (diluted EPS of $0.43) in the year-ago quarter.
• Net income(2) was $46 million (diluted EPS of $0.39), compared with $20 million (diluted EPS of $0.21), including a $28 million loss from discontinued operations in the year-ago quarter.
• Adjusted EPS(1) was $0.48 compared with $0.47 in the year-ago quarter.
• Adjusted EBITDA(1) was $107 million (21.8% of net sales) compared with $103 million (21.3% of net sales) in last year\'s third quarter.
• Net debt leverage ratio decreased to1.9x; refinanced existing term loan and repaid $100 million of principal.
• Closed Water Management acquisition of Just Manufacturing Co. in January.

Todd Adams, President and Chief Executive Officer, commented, “We delivered another set of solid operating results in our third quarter and continue to demonstrate our ability to deliver improving margins and cash flow within a broadly stagnant macro environment. Both platforms continue to make important progress with our strategic initiatives around simplification and structural cost reduction and with our DiRXN (pronounced “Direction”) digital enterprise strategy. The investments we’ve made to expand our relative exposure to more stable growth areas and to develop innovative product and service solutions supports our optimism as we navigate our fourth quarter and look into the coming fiscal year. Our free cash flow has increased by more than 25% through the first nine months of the fiscal year, and we repurchased $20 million of our shares in the third quarter. As we announced yesterday, our Board has approved an enhanced capital allocation strategy, which includes an increase in our share repurchase authority and the first common stock dividend since our initial public offering.”

“Our Process & Motion Control (“PMC”) platform continued to deliver additional margin expansion in the quarter within a flattish core growth environment that is inclusive of our product line simplification initiatives. We continue to deliver growth in our consumer-facing and aerospace end markets, while demand conditions across our process industry end markets remained weak into the end of the calendar year. Our development of scalable capabilities for our connected gear products is advancing rapidly, and we expect that our connected products will make a more substantial contribution to PMC’s sales over the next year.”

“Our Water Management platform continues to deliver solid core growth and additional margin expansion as we benefit from our strategic market expansion initiatives and solid activity levels across our North American institutional construction end market and in key commercial verticals. Our pilot installations and sales funnels for our connected products continue to expand nicely as interest from building owners and operators is growing across several high-potential end-market verticals. We expect a growing impact on our sales growth from digitally-enabled products for retrofit applications in particular as we move through our fourth quarter and into our fiscal 2021.”

Fiscal 2020 Outlook

Adams continued, “With one quarter to go in our fiscal 2020, we’re updating our outlook for net income from continuing operations to be between $192 million and $195 million and narrowing the range of our guidance for Adjusted EBITDA(1) from $460 million to $467 million to $460 million to $464 million to primarily reflect the estimated impact of the suspension of 737MAX aircraft production in our fourth quarter. We continue to expect our free cash flow to exceed net income.”

For earnings history and earnings-related data on Rexnord (RXN) click here.

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